China Enters The WTO
Forbes.com

By Dan Ackman

Nov. 12, 2001 — China, the world's most populous nation, joined the World Trade Organization this weekend, ending 15 years of negotiations, offering China a new place at the table of nations and giving new life to centuries of dreams. Taiwan was admitted the following day.
China's entry into the WTO, announced at the organization's meeting in Qatar, entitles it to the full trading rights of capitalist countries. But debates about the fullness of its embrace of capitalism, the same debates that kept China out of the WTO, still linger.

The admission is one of China's most significant diplomatic achievements since it displaced Taiwan and took a seat on the United Nations Security Council in 1971, soon after which then President Richard Nixon made his famous trip to Beijing.

Admission means China will enjoy protection against the imposition of barriers on its goods, such as the sanctions that human rights activists have often advocated to punish Beijing for its stifling of free speech and religion and its alleged tolerance of slave labor. The United States will cease the annual review procedure in which Congress considers ending "normal trade relations" with China based on its human rights performance.

China, in turn, must make sweeping changes in nearly every sector of its economy, which is both the largest and the fastest growing in the developing world. Most of these pledges were contained in an earlier deal negotiated by the Clinton Administration, which saw more open trade with China as both a means to increase U.S. exports to that country and a as way of pushing Beijing along a path toward private enterprise and democratization.

China is further along than it has ever been, but it is still nominally Communist and still suffers under one-party rule. In addition to barriers to external trade, provincial Chinese governments still erect local barriers that can be maddening to Chinese and non-Chinese traders. It will be years before trade barriers are actually dismantled.

As detailedin a recent articlein Forbes magazine, "Provinces and municipalities have erected tariff and nontariff barriers to keep out one another's autos. Shanghai, for instance, imposes huge 'license fees' on competing Citroën cars from Hubei province to protect the locally made Volkswagen Santana, which monopolizes the taxi fleet. But of course: The Shanghai government owns a stake in the VW joint venture."

Even with the barriers, China is an important trading partner for the United States. U.S.-China trade was worth $116.3 billion in 2000. China exports much more than it imports. It shipped more than $100 billion worth of goods and services to the American market last year, making it the fourth-ranked exporter to the U.S. In return, America sent China a mere $16.3 billion worth of goods and services, making it the U.S. 14th largest export market.

China's neighbors fear the huge nation unrestricted will come to dominate trade in Asia, and with that dominance will exert political control as well. Western nations also wonder whether the proposed free trade area among China and ten Southeast Asian nations--the idea is to form a trillion-dollar market over the next ten years--will effectively freeze them out of a wide swath of Asia.

For now, there is new hope that free trade with China will create new wealth for all parties, as it usually does. But the potential Chinese market for western exports is concentrated in the wealthier urban areas--perhaps 200 million people.

Nonetheless, a handful of western fortunes have been forged in China. AIG , for instance, got its start when a young American entrepreneur named C.V. Starr, opened a small insurance agency called American Asiatic Underwriters in Shanghai, offering fire and marine insurance. Today, it is perhaps the world's largest insurer. Ironically, a dispute involving AIG's operation in China was one of the last sticking points for allowing China into the WTO.

The Chinese people have long been fabulous traders and inventive businessmen--when abroad. One look at Hong Kong, Singapore, dozens of high-tech companies in the U.S., or the Chinatowns of western cities hammers that point home. Within China, the Chinese have been hampered by authoritarian regimes, both before the Communist revolution and since then.

If entry into the WTO breaks down political barriers, China will emerge richer, as will the world. But there will be some unsettling moments along the way.

Related News: Bush Welcomes China, Taiwan WTO Membership